Entries from April 2019 ↓

What it does

Toronto condo sales have dropped, listings have increased but prices haven’t declined. Just the opposite. The average high-rise concrete box now costs about $570,000 and comes with condo fees, property taxes, utility and insurance overhead, no dirt and little privacy.

At the same time RBC is telling us Mills have flooded into Toronto, Montreal and Vancouver – almost a hundred thousand of the bearded, tattooed creatures in just one year. In fact, for every young person leaving the Big Smokes, seven to 12 new ones have swept in from elsewhere in the country or the world.

So why would sales be down for the only affordable type of real estate left?

Price, of course. The stress test reduced credit, kicked a lot of buyers out of the market, made the purchase of a detached house an impossibility and increased demand for condo units. So, fewer buyers means fewer sales but those in the market are competing. Until inventory surges much higher, values will likely hold.

There’s little question that a whole generation of moister-buyers in places like the GTA and YVR are being slaughtered by price. Zoocasa said this week only the top 10% of income-earners can afford to buy a house there. In Vancouver 97.5% of people are too poor. And yet folks still strive to do so, taking on Herculean debt loads and giving scant thought to the consequences. Society continues to be victimized by our own cultural bias against the most logical, rational, prudent path for young couples, which is to rent.

Now, for more insight into the Millennial angst consuming the country’s largest cohort, here’s Lindy:

I just started reading your blog, and my most important question is – where do you go to start getting a better understanding of finances if you have no background in it, and no people in your network who understand it?

I’m 34 and my Husband is 36. We live in Vancouver, and all of our family and friends are located here as well so we feel strongly about staying here. About two years we inherited some money from a death in the family. We thought we wanted to buy a place and so we put our inheritance of about $250,000 in a term deposit so we could access it easily if we needed to. As housing prices are starting to go down in Van we’ve been waiting. In the meantime we live with my parents where we don’t pay rent. This has allowed for me to go back to school and for us to do two rounds of in vitro fertilization. We hope to have children in the next year or two and I have about two years of school left. This means we’ll likely rely on just my husband’s income for years – about $80,000 after bonus and we both don’t expect to have access to pension plans in our future careers. We have $35,000 in our RRSPs and $5000 in a TFSA both of which are invested in index funds.

We want to move out from my parent’s house so that my brother can move in but if we rent it would be about $2000-$2500 a month. If we buy, we can get a 2 bedroom condo in the (closer) burbs with about a $300-350,000 mortgage plus our savings. Do you think buying is the right path to take given that we don’t expect pensions (beyond CPP and OAS)? Are we totally screwing up? We don’t have financial knowledge and we also don’t know who to consult, do you have advice here? Where do people go when they don’t know anything?

Lindy & squeeze are considering buying a condo outside YVR for about $600,000, consuming all their savings plus inheritance and increasing debt from zero to $350,000. Why would they do such a thing after being gifted more money than they can save in an entire adulthood? Why, when they’re engineering a family, expect no pensions and face living on a meagre income consumed by mortgage payments, strata fees and Huggies?

The condo cost will be $1,700 for the mortgage, at least $600 for fees and taxes plus the loss of $250,000 which could be invested. Far more, in other words, than renting the same unit. Meanwhile the inheritance, if invested wisely should sit around $2 million at age 65, throwing off enough income for them to retire comfortably.

This is what real estate does. It addles the brain. Muddles decisions. Leads stray. How can these moisters seriously consider squandering a great gift and a head start on something they can have without debt and for less expense? Why would they sacrifice and risk so much to own an apartment their family will likely outgrow? If children materialize, should they not come first? And why are 35-year-olds living with their parents? Did real estate prices do that? Or our shifting cultural norms?

But Lindy’s main question was where to gain financial knowledge when those about you have none?

Well, you’re here. It’s a start.

Some advice: move out. Rent. Live within your means. Save. Get some help, invest the money and forget about it. Forever. Ignore anyone telling you to buy a condo. Stay out of debt. And did I mention moving out? You don’t want family pressure. Or strata fees. You need freedom, independence and space. Soon, trust me, you’ll see through a new lens.

And, for the love of God, ignore the comment section.

Crusty thinking

The Doctor is IN, ready to deal with your financial stress and real estate anxieties. Here, lie on this couch and let it all gush out, Alexa.

We are a married mid 30’s couple with 2 kids and renting a house.  We have made poor financial decisions with home buying and we’re feeling stuck and seeking advice…

My husband went to University for pharmacy, working full time with no pension since then. I worked, then stayed home with kids.  Purchased townhouse in 2009 and sold within 2 years for $5k less than paid for it…plus fees

Purchased large house soon afterwards and promptly sold within 2 years as it was sinking us monthly and wanted to get out before it was too late….then sold for $5k less than paid for it….plus fees. We decided to rent for a couple years to save and figure out what’s next…then the housing prices skyrocketed and now we’re stuck…

We’re currently paying $1500 rent for a full house with HUGE backyard for kids to play and a block from grandparents for support (although not common to pay so little we are grateful!!)

Investments total $130k between RRSPs, TFSAs, RESP and joint account. We’re saving $1500 monthly right now which is going towards debt but planning to save once all paid down by, our calculations, should be by next July

What should we do!? Should we buy? Move? stay renting?

We aren’t sure if draining our investments is smart…or want to have a $500-$600k mtg which won’t leave us with much more than about $200 monthly for extras…..we have 2 growing athletic boys… Thanks for all your guidance and suggestions.

No brainer, Alexa. Rent. First, you just don’t have enough money to buy without (as you know) killing your investment portfolio and sucking up a lot of debt. Second, you have great lease, a good house and a perfect location. Why move? Third, your greatest responsibility is the children you brought into this world. Owning a house (as opposed to renting one) is pointless as far as they’re concerned. If buying means you save less for their futures, that would be a selfish, misguided move.

Finally, this isn’t your first rodeo. You’ve done it before. Twice. You lost money on both occasions. Real estate was a net drag on your net worth, plus it caused you stress and tension. Why would things be any different now? Unsubscribe from HGTV and stop talking to your parents. That should help.

Now here’s Ryan, who reads this blog and actually thinks hard about the drivel it contain. Good boy, Ryan. Whazzup?

I’ve been a long-time reader of your daily affirmations, which have helped give me the confidence to make good financial decisions. It really is empowering and I will be forever grateful. That said, I read your last post about GICs and it rattled me. Here’s the thing…

My wife and I are on the cusp turning forty. We just sold our condo and will be walking away with $650,000, free and clear. We have an additional $100k in cash (I know, I know), TFSA’s maxed out (~$60k each), and about $40k each in RRSPs, with some room to spare. We both work for big companies with DB pensions, assuming we stick around that long (unlikely, but who knows?). No kids, just a furry pooch.

We’d like to get a house when things in the market settle down a bit, so hopefully in a few years. We’re going to rent in meantime, as per the Turner plan, despite the agonizing GTA rental prices. Given our short-ish time horizon, we had figured our best plan was to put the money into a GIC while we wait things out but your post on this made us question it.

With what timeline should you not consider a 60/40 portfolio? Are GICs ever the answer? Is there something better for those of us with shorter time horizons? Thank you so much. Always grateful.

To recap. GICs suck. They pay barely more than inflation. The interest is fully taxed. You must declare and pay tax on the money before you receive it. The best rates are paid by the dodgiest outfits. In short, you’d actually be as far ahead staying in cash.

But to your question: is investing for a couple of years too short-term? Well, weigh the risks. Not investing could cost you roughly $40,000 over the next couple of years if a balanced portfolio delivers the same average return as over the last eight. That’s enough to pay the land transfer tax on a new place or buy a load of furniture including one of those fridges with a built-in TV (how can you eat breakfast without one?).

The point of a balanced and diversified portfolio is growth with stability. That’s why there are bonds, preferreds, REITs and equity in various markets and countries. Can this ever go down and give a negative return? Of course. In 2018 Bay Street gave up 12% and a B&D portfolio lost 3%. But down years are the exception, since 70% of the time growth is the norm. Moreover, when financial assets fall it’s usually because of a slower economy, which also weighs on real estate.

There is no correct answer to the question. It depends on you. Your tolerance for change. Your emotions. But realize that you now have close to $1 million liquid. The odds of that becoming $3 million in 15 years – at age 55 – are damn good if you invest, instead of going for another house. That should churn out about $200,000 a year in tax-efficient income, allowing you to retire and live in comfort – forever.

Or, you could GIC, buy a house, embrace debt and hope for the best.

Some choice. Ask the dog.